In the trading industry, there are generally three types of traders, namely, the aggressive traders, the conservative traders, and the confirmation traders. All these types of traders have their own technique and style of trading.
For example, an aggressive trader trades every small opportunity he gets, even if all the criteria for taking the trading are not satisfied; a conservative trader trades only when all the requirements to enter the trade are satisfied, while, a confirmation trader only trades after the market gives them a confirmation.
Well, the candlestick pattern we are going to discuss is made for the confirmation traders although any trader can use it. Confirmation traders usually do not trade the patterns like railroad tracks, and morning and evening star, because there is not much confirmation in these patterns. However, they trade the three soldiers and the three crows patterns, as it provides more confirmation than other patterns.
In this lesson, we shall be discussing the unique way of how price action traders look at the three soldiers and crows patterns.
The Three Soldiers Candlestick Pattern
The three soldiers pattern also referred to as “three advancing soldiers” and “three white soldiers” is a triple candlestick pattern formed by three bullish candles. In this pattern, the first candle is bullish, the second candle is also bullish but longer than the previous candle’s body, and its close is near the high of the candle, and finally, the third one is again a bullish candle whose specifications are similar to the second candle.
Below is an example of how a three soldiers pattern looks.
Interpreting the Price Action of the Three Soldiers Candlestick Pattern
Concerning the above figure, let’s understand the price action of each candle. The first candle begins with a bullish note, indicating that the buyers are showing some traces of entering the market. The second candle opens near the close of the first candle and closes approximately at the high of the candle. Also, it is longer than the first candle. This is a clear indication that the buyers have picked up the pace. Lastly, the third candle ends up being longer than the previous two candles. Therefore, from these three candles, we can infer that the momentum of the buyers is intensifying every step of the way. Hence, confirming that the buyers are all set to take the market higher.
The Three Crows Candlestick Pattern
The three crows pattern is the opposite of the three soldiers pattern. This is a triple candlestick pattern with all the three candles bearish. If we had to read the pattern candle by candle, the first one starts as a small bearish candle; the second candle too is bearish and is also larger than the first candle, and the third candle closes more bearish than the previous two candles.
Below is the representation of a three crows pattern.
Interpreting the Price Action of the Three Crows Candlestick Pattern
With reference to the above pattern, we can see that the first candle is bearish. This does not show any strength of the seller yet. However, the next candle closes bearish with a longer body than the previous candle’s body, indicating sellers are gradually getting stronger. Finally, the third candle also pushes the market downward, in fact, much farther than the previous two candles. Form this, we can conclude that the sellers currently dominate the market, and this domination is expected to continue in the next few trading sessions as well.
What Type of Patterns to Consider?
- It is recommended to consider only those patterns whose candlestick bodies are not overextended because a long body can result in entering the trade very late.
- It is not necessary to seek candles which have only a bare body, as, the existence of tiny wicks will not vary the meaning (story) of the pattern. Having said that, wicks longer than the body shouldn’t be considered, as it indicates power on both sides.
The Logical Way of Reading the Three Crows Candlestick Pattern
Below is the chart of EUR/CAD on the 4H timeframe. We can see that the market is in a downtrend. The market comes down until point 1 starts to pullback. After the pullback, we wait for the three crows pattern to appear. However, when the price pulls back to the S&R (orange line), we do not find the three crows pattern. And later, when the market drops down, it fails to make a lower low. So, we now wait for another opportunity to spot the pattern. When the price pulls back from point 2 and holds at the S&R area, we can see that the market made a three crows pattern (inside the encircled area), indicating that the sellers are back in the game. Therefore, we can hit the sell right after the third candle closes.
In the above example, managing the trade professionally is very necessary as we are hitting the sell at the area where the buyers shot up twice. Assuming we entered the trade when the third candle closed, the stop loss for this trade would be right above the high of the first candle in the three crows pattern. And, coming to the take profit areas, our first target would be at the support area where the buyers showed their presence two times (point 1 and point 2). So, when the price touches the support, we extract half the profits from the trade and let the rest of the positions still running, in anticipation that the market will make new lower lows.
How important is the Location?
More than the pattern, the location of the occurrence of the pattern is more significant. An example supporting the mentioned statement is as follows.
Consider the below chart. We can see that the market is coming from a predominant downtrend. However, as the price starts to pullback, the three soldiers patterns occur, signalling a buy signal. Well, the market was supposed to head north from there, but it just goes up a little and then crashes down south. The reason for the pattern not functioning correctly lies in the location where the pattern appeared. Here, the market was under the control of the sellers, and the pattern occurred around the S&R area, which is the vicinity of the sellers. Therefore, there was no logic for the price to go up after the pattern occurred.
The momentum of the market is one of the most significant factors price action traders take into considerations. As we have seen, the three soldiers and the three crows candlestick pattern are patterns that reveal the growing momentum of the market into. Therefore, price action traders always seek to trade this pattern.
These two patterns are universal patterns, but we should consider the risk as well. Sometimes the entry point is far away from its invalidation level, therefore we must consider also targets and reward-to-risk ratios before deciding the pattern is tradeable.